A convergence of the new Omicron strain + the shipping crisis could push up global inflation and undermine the post-covid recovery in a big way. That’s the headline message from two recent reports from the United Nations Conference on Trade and Development (UNCTAD) and the Organization for Economic Cooperation and Development (OECD) looking at the forecast for trade, inflation, and the global socioeconomic recovery.

“Uneven” performance is still the headline feature of global economic performance: Across OECD countries, the economic recovery and output levels since mid-2020 have outstripped expectations, but is now beginning to slow down and “is becoming increasingly imbalanced,” said the OECD in its latest Economic Outlook report. The unevenness is particularly evident in low-income countries with low vaccination rates, and will likely remain a key fixture of the economic recovery going forward, with the report forecasting “sizeable long-term income scars from the crisis” among developing and emerging markets.

The recovery is being undermined by supply chain bottlenecks failing to keep up with surging consumer demand for goods, which is creating inflationary pressures across the world, the OECD notes. Prices are rising on the back of “disruptions in energy, food and commodity markets,” coupled with higher prices (and shortages) of energy that are holding back the production of “key materials and intermediate goods,” according to the report.

High shipping costs could also continue to hold back the global manufacturing recovery: If container freight rates increase by 10%, this could lead to a 1% decrease in manufacturing in the US and the Eurozone, while China’s production could drop 0.2%, according to UNCTAD’s Review of Maritime Transport 2021 (pdf). The report points to shipping supply chain disruptions, port constraints, and terminal inefficiencies as main problems driving up shipping costs globally.

This is all feeding into rising (and not-so-transitory) inflation: Global import price levels could increase by 11% and consumer price levels by 1.5% between now and 2023 due to high freight costs unless the shipping crisis is resolved, UNCTAD says. All of these inflationary pressures are now expected to last longer than previously anticipated, according to the OECD, which expects inflation to peak in 2021 but remain above pre-pandemic levels through 2023.

Even with inflation, the impact and recovery trajectory is mixed — both across countries and sectors. Small island developing states could see import prices increase by 24% and consumer prices by 7.5% while least developed countries could see consumer price levels rise by 2.2%, UNCTAD said. Low-value-added items such as furniture, textiles, clothing and leather products are expected to endure the highest price increases, forecasted at 10.2%. Meanwhile, the price of rubber and plastics products could go up by 9.4%, pharma products 7.5%, electrical equipment 7.5%, motor vehicles 6.9%, and machinery and equipment 6.4%.

Enter Omicron: All of these imbalances could be magnified with the arrival of the new covid-19 strain, which has so far seen several countries impose travel restrictions in a scenario that reminds us just a little too much of early 2020. “New mobility restrictions and port closures could hamper global trade, as persisting shutdowns in key economies reduce the availability of supplies along supply chains and lengthen supplier delivery times. Such further supply disruption might also create additional upward pressure on some prices,” the OECD says.

The outlook? It’s all about vaccination: As more countries — particularly developed economies — ramp up vaccination and are now working on rolling out booster shots, the effect of covid-19 and related supply disruptions will continue to ease, the OECD says. Demand patterns are also expected to normalize and kinks in the supply chain will be smoothed out, which “should facilitate a continued global economic recovery and remove some inflationary pressures, but will not necessarily make the recovery more balanced.”